• Achieves comparable basis EPS of $1.42 and reported basis EPS of $1.33 driven by beer business
  • Generates $578 million of free cash flow and $1.1 billion of operating cash flow
  • Increases fiscal 2016 outlook driven primarily by strong beer business results; expects comparable basis EPS of $5.30 - $5.40 and reported basis EPS of $5.05 - $5.15
  • Increases fiscal 2016 free cash flow projection to $475 - $525 million including operating cash flow target of at least $1.35 billion; total capital expenditures estimated to be $875 - $925 million for fiscal 2016
  • Finalizes plans for construction of new 10 million hectoliter brewery in Mexicali, Mexico
  • Completes Ballast Point craft beer acquisition in December 2015
  • Declares quarterly cash dividend
Third Quarter 2016 Financial Highlights*
(in millions, except per share data)
Comparable % Change Reported % Change
Net sales $1,641 6% $1,641 6%
Operating income $476 15% $447 19%
Operating margin 29.0% +210 bps 27.3% +290 bps
Earnings before interest and taxes (EBIT) $503 15% NA NA
Net income attributable to CBI $289 16% $271 22%
Diluted net income per share attributable to CBI (EPS) $1.42 15% $1.33 21%

*Definitions of reported and comparable, as well as reconciliations of non-GAAP financial measures, are contained elsewhere in this news release.
NA=Not Applicable

VICTOR, N.Y., Jan. 7, 2016 - Constellation Brands, Inc. (NYSE: STZ and STZ.B), a leading beverage alcohol company, reported today its third quarter 2016 results.

"The events of this quarter and the initiatives announced today mark another dynamic chapter at Constellation. As our beer business continues to achieve remarkable results, I am pleased that we have finalized our capital investment plans to support our future growth through the addition of a new state-of-the-art brewery in Mexicali, Mexico. We have also reached a major expansion milestone at our Nava brewery as the first incremental 5 million hectoliters of production capacity becomes operational. Furthermore, the completion of the Ballast Point craft beer acquisition solidifies our position in the high-end segment of the U.S. beer market," said Rob Sands, president and chief executive officer, Constellation Brands. "In addition, our wine and spirits business significantly improved margins driven by the Meiomi wine acquisition, as well as favorable mix trends and COGS benefits, while the Canadian business posted solid results, gaining dollar share across major market segments."

Net Sales Commentary
For the quarter, the company generated consolidated net sales growth of six percent. This reflects organic net sales growth on a constant currency basis of six percent and Meiomi acquisition benefit, partially offset by unfavorable currency impact.

Beer net sales increased eight percent, primarily due to volume growth. Beer depletions grew more than 16 percent, reflecting strong consumer demand for the beer portfolio. Net sales growth for third quarter 2016 was impacted by the overlap of a $37 million shift in net sales from second quarter 2015 to third quarter 2015 related to beer product recall activities.

"The beer business posted outstanding depletion growth during the third quarter driven primarily by the accelerating momentum of Corona Extra and Modelo Especial, although nearly every brand in the portfolio experienced double digit depletion gains," said Sands. "Strong consumer demand continues to propel the portfolio and reflects the benefits of marketing and brand building efforts, as well as distribution gains for key products. Excellent marketplace execution helped Constellation win the Labor Day holiday and the fall sports season. These stellar results are driving the upward revision to our EPS target for the year."

Wine and spirits net sales on an organic constant currency basis increased three percent. This primarily reflects favorable mix.

"This is the first full quarter that we are seeing the benefits of the Meiomi wine acquisition, which has been fully integrated into our portfolio of premium wine brands. During the quarter, Meiomi grew more than 80% in IRI channels and its strong margin profile helped drive the quarterly margin improvement for our wine and spirits business. In addition, some of our other focus brands posted strong depletion growth including Kim Crawford, The Dreaming Tree, Mark West, Ruffino and Clos du Bois, as focus brand investments during the key holiday selling season are driving excellent results," said Sands.

Operating Income and Net Income Commentary
For the quarter, consolidated comparable basis operating income increased 15 percent.

Beer operating income increased 20 percent, primarily due to volume growth, favorable pricing and lower cost of product sold for the beer portfolio, partially offset by increased marketing spend. The 12 percent increase in wine and spirits operating income primarily reflects the benefit from the Meiomi acquisition, favorable mix and lower cost of product sold, partially offset by higher marketing spend.

For third quarter 2016, pre-tax comparable adjustments totaled $29 million as compared to $40 million for the same period last year.

Interest expense for third quarter 2016 totaled $76 million, a decrease of 12 percent. The decrease was primarily due to lower average interest rates.

The comparable basis effective tax rate for third quarter 2016 was 32.3 percent as compared to a 29.2 percent tax rate for the prior year third quarter, which reflected the benefit of certain tax credits. The company now expects the comparable basis effective tax rate to approximate 30 percent for fiscal year 2016.

Free Cash Flow Commentary
Free cash flow for the first nine months of fiscal 2016 totaled $578 million as compared to $209 million for the same period last year. The increase is primarily driven by higher operating cash flow.

"We are increasing free cash flow guidance for fiscal 2016 to a range of $475 to $525 million. The anticipated increase is being primarily driven by higher earnings for the beer business, timing of capital expenditures and lower income tax payments," said David Klein, executive vice president and chief financial officer, Constellation Brands. "Earlier today, we announced plans to build a new brewery in Mexicali and further expand our Nava brewery as part of our efforts to support the significant growth opportunity we see for our beer business over the long term. Even with the incremental capital expenditures projected for this initiative, we are decreasing our total capital expenditure estimate to a range of $875 to $925 million for fiscal 2016. While the initial 10 million hectoliter expansion at Nava continues to progress as planned, payment timing for some of the capital expenditures associated with this activity has shifted into fiscal 2017."

Quarterly Dividend
On January 6, 2016, Constellation's board of directors declared a quarterly cash dividend of $0.31 per share of Class A Common Stock and $0.28 per share of Class B Common Stock, payable on February 24, 2016, to stockholders of record as of the close of business on February 9, 2016.

The table below sets forth management's current EPS expectations for fiscal 2016 compared to fiscal 2015 actual results, both on a comparable basis and a reported basis, including the acquisitions of Meiomi and Ballast Point.

Comparable Basis Reported Basis
Fiscal Year Ending Feb. 28/29 $5.30 - $5.40 $4.44 $5.05 - $5.15 $4.17

For fiscal 2016, the beer business now expects net sales growth of approximately 12 - 14 percent and operating income growth in the 22 - 24 percent range before any benefit from the Ballast Point acquisition. For the wine and spirits business, the company continues to expect net sales and operating income growth to be in the low to mid single-digit range before any benefit from the Meiomi acquisition.
Fiscal 2016 guidance also includes the following current assumptions, including the acquisitions of Meiomi and Ballast Point:

  • Interest expense: approximately $310 - $320 million
  • Tax rate: approximately 30 percent
  • Weighted average diluted shares outstanding: approximately 204 million
  • Free cash flow: approximately $475 - $525 million
  • Operating cash flow: approximately $1.35 - $1.45 billion
  • Capital expenditures: approximately $875 - $925 million

Conference Call
A conference call to discuss third quarter 2016 results and outlook will be hosted by President and Chief Executive Officer Rob Sands and Executive Vice President and Chief Financial Officer David Klein on Thursday, Jan. 7, 2016 at 10:30 a.m. (eastern). The conference call can be accessed by dialing +973-935-8505 beginning 10 minutes prior to the start of the call. A live listen-only webcast of the conference call, together with a copy of this news release (including the attachments), and other financial information that may be discussed during the call will be available on the Internet at the company's website: www.cbrands.com under "Investors," prior to the call.

Reported basis ("reported") operating income, net income and EPS are as reported under generally accepted accounting principles. Operating income, net income and EPS on a comparable basis ("comparable"), exclude items that affect comparability ("comparable adjustments"), as they are not reflective of core operations of the segments. The company's measure of segment profitability excludes comparable adjustments, which is consistent with the measure used by management to evaluate results.

The company discusses additional non-GAAP measures in this news release, including constant currency net sales, organic net sales, comparable basis EBIT, comparable basis effective tax rate and free cash flow.

Supplemental Financial Information
Tables reconciling non-GAAP measures, together with definitions of these measures and the reasons management uses these measures, are attached to and are part of this news release.

About Constellation Brands
Constellation Brands (NYSE: STZ and STZ.B) is a leading international producer and marketer of beer, wine and spirits with operations in the U.S., Canada, Mexico, New Zealand and Italy. In 2015, Constellation was one of the top performing stocks in the S&P 500 Consumer Staples Index. Constellation is the number three beer company in the U.S. with high-end, iconic imported brands including Corona Extra, Corona Light, Modelo Especial, Negra Modelo and Pacifico. Constellation is also the world's leader in premium wine selling great brands that people love including Robert Mondavi, Clos du Bois, Kim Crawford, Meiomi, Mark West, Franciscan Estate, Ruffino and Jackson-Triggs. The company's premium spirits brands include SVEDKA Vodka and Black Velvet Canadian Whisky.

Based in Victor, N.Y., the company believes that industry leadership involves a commitment to brand-building, our trade partners, the environment, our investors and to consumers around the world who choose our products when celebrating big moments or enjoying quiet ones. Founded in 1945, Constellation has grown to become a significant player in the beverage alcohol industry with more than 100 brands in its portfolio, sales in approximately 100 countries, about 40 facilities and over 8,300 talented employees. We express our company vision: to elevate life with every glass raised. To learn more, visit www.cbrands.com.

Forward-Looking Statements
The statements made under the heading Outlook, and all statements other than statements of historical fact set forth in this news release regarding Constellation Brands' business strategy, future operations, financial position, estimated revenues, projected costs, estimated diluted EPS, expected cash flow, prospects, future payments of dividends, plans and objectives of management, as well as information concerning expected actions of third parties, are forward-looking statements (collectively, the "Projections") that involve risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by the Projections.

During the current quarter, Constellation Brands may reiterate the Projections. Prior to the start of the company's quiet period, which will begin at the close of business Feb. 29, 2016, the public can continue to rely on the Projections as still being Constellation Brands' current expectations on the matters covered, unless the company publishes a notice stating otherwise. During Constellation Brands' "quiet period," the Projections should not be considered to constitute the company's expectations and should be considered historical, speaking as of prior to the quiet period only and not subject to update by the company.

The Projections are based on management's current expectations and, unless otherwise noted, do not take into account the impact of any future acquisition, merger or any other business combination, divestiture, restructuring or other strategic business realignments, financing or share repurchase that may be completed after the date of this release. The Projections should not be construed in any manner as a guarantee that such results will in fact occur.

In addition to the risks and uncertainties of ordinary business operations, the Projections of the company contained in this news release are subject to a number of risks and uncertainties, including:

  • Mexicali brewery construction and Nava brewery expansion activities and joint venture glass plant expansion activities take place with expected scope, on expected terms and timetable, and with receipt of any necessary permits and regulatory approvals;
  • accuracy of supply projections, including those relating to Mexicali brewery construction and Nava brewery expansion and glass sourcing;
  • timeframe and actual costs associated with beer supply, Mexicali brewery construction and Nava brewery expansion and glass sourcing, including joint venture glass plant expansion, may vary from management's current expectations due to market conditions, the company's cash and debt position, and other factors as determined by management;
  • free cash flow, operating cash flow and capital expenditures to support long-term growth may vary from management's current estimates;
  • timing and volume amount of beer shipments to wholesalers may vary from current expectations due to actual consumer demand;
  • accuracy of projections associated with the Meiomi wine brand and the Ballast Point acquisitions;
  • the impact of and the ability to realize the anticipated benefits of acquisitions, including as a result of difficulty in integrating the businesses of the companies involved;
  • the exact duration of the share repurchase implementation and the amount and timing of any additional share repurchases;
  • amount and timing of future dividends are subject to the determination and discretion of the Board of Directors;
  • ability to use cash flow to fund dividends could be affected by unanticipated increases in net total debt, inability to generate cash flow at the levels anticipated, and failure to generate expected earnings;
  • raw material and water supply, production or shipment difficulties could adversely affect the company's ability to supply its customers;
  • increased competitive activities in the form of pricing, advertising and promotions could adversely impact consumer demand for the company's products and/or result in lower than expected sales or higher than expected expenses;
  • general economic, geo-political and regulatory conditions, instability in world financial markets, or unanticipated environmental liabilities and costs;
  • changes to accounting rules and tax laws, and other factors which could impact the company's reported financial position, results of operations or effective tax rate;
  • changes in interest rates and the inherent unpredictability of currency fluctuations, commodity prices and raw material costs;
  • accuracy of the bases for forecasts relating to joint ventures and associated costs, losses, purchase obligations and capital investment requirements; and
  • other factors and uncertainties disclosed in the company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended Feb. 28, 2015, which could cause actual future performance to differ from current expectations.

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Investor Relations
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